eBay Inc.’s EBAY board has finally given its stamp of approval to PayPal’s spinoff as a separate public company. In September last year, eBay had announced that it will spin off its PayPal payments unit into a separate publicly-traded company as early as the second half of this year.
The Spinoff
The separation will be completed by Jul 17. Both companies will become independent and start trading publicly. After the separation, PayPal will begin trading on Jul 20 on the Nasdaq stock exchange under the stock symbol PYPL. eBay's ticker will remain unchanged.
eBay stockholders on record as of Jul 8 will receive one PayPal common stock against each eBay share. The distribution of PayPal stock will take place on Jul 17. Goldman, Sachs & Co. and Allen & Company LLC are serving as financial advisors and Wachtell, Lipton, Rosen and Katz is serving as official counsel in association with the separation and distribution.
What Happens After the Separation?
Following the separation, one company will focus on online commerce and the other on digital payments. This is an opportunity for both companies to increase focus on core capabilities and operate with greater flexibility for success in their respective markets.
eBay intends to focus on growing its 25 million sellers and 157 million active buyers, mainly small- and medium-size merchants, which constitute about 70% of the global retail market. PayPal on the other hand will focus on positioning itself as a "full-service" payments associate for consumers and merchants, managing mobile transactions, credit purchases and customer loyalty rewards programs.
However, eBay and PayPal will continue operating under a five-year contract to assure a dependable source of revenues for PayPal after the separation. However, both the companies will be free to partner with new retailers and other financial firms.
The Last Word
PayPal has been the fastest growing division for eBay for quite some time now and has been surpassing eBay’s marketplace revenues. Though the marketplace division has also been growing, its pace has been slower, due to stiff competition from the likes of Amazon Inc. AMZN and Alibaba BABA.
Though things might look very rosy for PayPal, it is important to remember that the online payments business is moving rapidly to the mobile devices platform, where PayPal does not have a dominant presence.
On the other hand, eBay’s business has been bolstered by PayPal’s strong growth. So without PayPal, eBay’s growth rate is likely to come down. However, the company will no longer be required to invest in Paypal’s growth, which could mean it will generate higher profits and cash.
eBay currently has a Zacks Rank #2 (Buy). Another stock worth considering in the sector is Ctrip.com CTRP, which carries the same rank as eBay.
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